SEMA News—August 2021

LEGISLATIVE AND TECHNICAL AFFAIRS

Federal Trade Commission Report Criticizes Anti-Competitive Repair Restrictions

By Stuart Gosswein

The Federal Trade Commission (FTC) issued a report to Congress in May that is highly critical of anti-competitive repair restrictions employed by manufacturers that limit consumer choice.

While the report focuses on product service and repair issues, it also has ramifications for the specialty parts industry. At stake is the consumer’s right to have a vehicle serviced, repaired—and modified.

In July 2019, the FTC held a “Nixing the Fix” workshop that formed the basis for the report on repair restrictions. The FTC considered a wide array of products ranging from printers to computers, with a focus on automobiles and mobile phones.

Consumer products are becoming harder to fix, and repairs often require specialized tools, difficult-to-obtain parts, and access to proprietary diagnostic software, according to the FTC. Repair options decrease as a result, placing an increased financial burden on lower-income and underserved populations.

The FTC said that there was “scant evidence to support manufacturers’ justifications for repair restrictions.” Manufacturer explanations for the restrictions were divided into six categories: protection of intellectual property, safety, cybersecurity, liability and reputational harm, consumer design choices, and quality of service.

The report provided examples of how manufacturer restrictions can block repairs. For example, the FTC reviewed access control technologies employed by OEMs, such as software locks, digital rights management tools, and technological protection measures. While manufacturers argue that those measures are necessary to protect proprietary hardware and copyrighted technologies, repair advocates argue that such tactics lock out independent service providers and consumers from basic repairs.

The report considered the potential for manufacturers to engage in unfair repair restrictions to limit aftermarket competition. Under the Magnuson-Moss Warranty Act (MMWA), it is illegal for a manufacturer to void a warranty or deny coverage if a customer has a repair or maintenance performed by an independent repair shop or using a third-party replacement part (unless the original manufacturer provides the service or part for free).

The MMWA’s anti-tying provision is not limited to service and repair issues. It also applies to specialty parts and modifications. For example, SEMA noted in testimony submitted to the FTC’s 2019 workshop that it periodically receives complaints of auto dealerships voiding warranties if the dealership finds a specialty part (e.g., custom wheels) had been installed on the automobile, regardless of whether the specialty part caused the automobile to malfunction.

While the FTC said that the manufacturer or dealer must show that the aftermarket part caused the need for repairs before denying warranty coverage, SEMA recommended that the agency go one step further and require a written explanation.

The FTC expressed concern over whether the MMWA’s anti-tying provision is keeping pace with technological challenges that have the potential effect of tying a repair to the OEM or their authorized dealers using OEM parts. Examples provided include:

• Unavailability of parts and repair information.
• Designs that make independent repairs less safe.
• Policies or statements that steer consumers to manufacturer repair networks.
• Application of patent rights and enforcement of trademarks.
• Disparagement of non-OEM parts and independent repair.
• Software locks and firmware updates.
• End-user license agreements.

The report explored ways to expand consumer repair options. Using the MMWA as a tool, the FTC could revisit whether manufacturers are in compliance and consider whether some repair restrictions are violations of antitrust law. The FTC could update its written guidance and regulations on the topic, although the agency acknowledges that the pursuit would be challenging given the variety of repair restrictions and widespread applicability to multiple industries.

The report also identified industry self-regulation as potentially beneficial while noting that only the auto industry has created and implemented it. In 2014, trade groups representing the automakers and independent repair shops and aftermarket replacement parts manufacturers entered into a Memorandum of Understanding after Massachusetts passed a motor vehicle right-to-repair law. Manufacturers agreed to sell the diagnostic and repair information made available to their dealers to car owners and independent repair shops.

In 2020, Massachusetts voters approved a new ballot initiative to essentially expand the existing right-to-repair law to telematics. Starting with model year 2022, “manufacturers of motor vehicles sold in Massachusetts to equip any such vehicles that use telematics systems…with a standardized open access data platform” that would enable vehicle owners to authorize independent repair facilities and dealerships “to retrieve mechanical data from and send commands to the vehicle for repair maintenance and diagnostic testing.” The ballot initiative is currently subject to a court lawsuit.

The report also examined legislative approaches for expanding repair options. Several state laws were cited that require manufacturers to make available adequate service information and replacement parts to warranty stations and independent service facilities for a certain period of time. The European Union is beginning to take up the issue as well, recently adopting some regulations aimed at increasing consumer repair options in the home appliance industry (refrigerators, washing machines, dishwashers, etc.).

The FTC concluded that it will pursue appropriate law enforcement and regulatory options to address unfair repair restrictions as well as consumer education. The FTC also stands ready to work with legislators, either at the state or federal level, to protect consumers’ rights and choices in repairing products that they own.

Vehicle Modifications

While the FTC report is generally focused on service and repair issues, consumers also have the right to modify their vehicles without fearing warranty coverage denial based on the installation of a specialty auto part.

Federal warranty laws prevent vehicle manufacturers, dealers and others from unjustly denying warranty coverage. Regarding aftermarket parts, the spirit of the law is that warranty coverage cannot be denied simply because such parts—replacement or specialty—are present on the vehicle or have been used. The warranty coverage can be denied only if the aftermarket part caused a malfunction or damage for which warranty coverage is sought. If disputes arise, they are generally over facts and technical opinions rather than interpretations of the law.

Federal Warranty Laws

The Magnuson-Moss Warranty Act (15 U.S.C. 2302(c)): This federal law regulates consumer warranties. The essence of the law concerning aftermarket auto parts is that a vehicle manufacturer may not condition a written or implied warranty on the consumers using parts or services that are identified by brand, trade or corporate name (such as the vehicle maker’s brand) unless the parts or service are provided free of charge.

The law means that the use of an aftermarket part alone is not cause for denying the warranty. However, the law’s protection does not extend to aftermarket parts in situations where such parts actually caused the damage being claimed under the warranty. Further, consumers are advised to be aware of any specific terms or conditions stated in the warranty that may result in its being voided. The law states in relevant part:

“No warrantor of a consumer product may condition his written or implied warranty of such product on the consumers using, in connection with such product, any article or service (other than article or service provided without charge under the terms of the warranty) which is identified by brand, trade or corporate name….”

Clean Air Act Warranty Provisions (42 U.S.C. S 7541(c)(3)(B))

The federal Clean Air Act requires vehicle makers to provide two emissions-related warranties: a production warranty and a performance warranty.

The production warranty requires the vehicle maker to warrant that the vehicle is designed, built and equipped so that it conforms to emissions requirements at the time of sale.

The performance warranty requires the vehicle maker to warrant that the vehicle will comply with applicable emissions requirements as tested under state vehicle emissions inspection programs for the specified warranty periods. The performance warranty is conditioned on the vehicle being properly maintained and operated.

As with the MMWA, vehicle manufacturers may not refuse warranty repairs under the Clean Air Act’s performance and defect warranties merely because aftermarket parts have been installed on the vehicle. The only circumstance under which the vehicle manufacturer can void the emissions warranties is if an aftermarket part causes the warranty claim.

Manufacturer warnings to their dealers are another way in which consumer choice may be limited. For example, the automakers periodically issue warnings that put dealers on notice that the use of non-
authorized parts or non-authorized vehicle modifications may void the manufacturer’s warranty obligation and create liability exposure for the dealer.

While most of the warnings do not cross the line of violating the MMWA’s prohibition of tying sales of branded products and services as a condition of warranty coverage, the FTC has flagged several warnings in recent years. In those cases, the agency placed the automaker on notice that it must change the warnings or face FTC legal action.

Technology is ever-evolving. Whether it is addressing cybersecurity concerns or controlling data, SEMA is working with its industry partners to make sure consumers always have the right to modify their vehicles and enjoy their rides.

For more information, visit www.semasan.com/resources/warranty-issues.